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calculating deadweight loss in international economics (Economics's Blog)

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May 10, 2008

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henry hong @ Economics

calculating deadweight loss in international economics

I'm doing this assignment and I'm totally lost,

U.S. :

d= 200 -40p

s= 40 +40p

Rest of the world:

d= 160 -40p

s= 80 +40p

The U.S. govenment imposes a quota of 32 units on its imports. Calculate the magnitude of deadweight loss resulting from the quota under the assumption that the U.S. is a small open economy?

If anyone knows about this it would great if you could help me out!

 

Keywords: deadweight loss, economics, international trade, supply and demand

Posted by henry hong @ Economics

Comments

  1. Your supply and demand formulas given show US demand of 40 more units than the rest of the world and 40 less supply than the rest of the world, so without quotas, it looks like the US would import 40 units. Since the quota is 32, there is a deadweight loss related to the 8 units that cannot be imported. I hope this gets you started in the right direction.

    user iconJack Robinson on Saturday, 10 May 2008, 22:47 CDT # |

  2. OK, so basically the approach here is to total the demand for US and 'rest of the world', and set that equal to the total supply for US and 'rest of the world', and then solve for the price 'p'. Right?

    Then you plug the price 'p' back into the US supply and demand formulas to find the US supply and demand values. If supply > demand, you have a surplus and the US exports; if suppply < demand you have a shortage and the US imports -- this is where a potential quota can come into play.

    Did I get that right? 

    user iconRudy on Monday, 12 May 2008, 08:16 CDT # |

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